Have you ever had someone spend hours trying to explain something to you and by then end, you’re just as confused as when you started? Then you ask them to show you what they mean in pictures, and everything suddenly clicks. For certain topics, I find it easier to explain things in pictures rather than words, because a lot of people are visual learners.
If you read almost any personal finance site, you’ll find advice on why you should start saving as early as possible and why you should avoid debt as much as possible. Sometimes they’ll even crunch the numbers for you and explain how you can become a millionaire if you start saving early enough thanks to the power of compound interest. While this information is great, I’ve always wondered why there are so many more people in debt rather than on their way to becoming millionaires.
After a little thinking and a little doodling, I’ve come up with two simple illustrations to explain why saving money is so much harder than spending money.
The beauty of compound interest is that it grows exponentially. The curve in the drawing above represents the growth of your savings over time. Now imagine the curve as something you might encounter in real life, like a mountain. Saving money is like climbing a mountain. It’s a great challenge that requires a lot of effort and determination. Some people never have the guts to try in the first place. Others may get tired and give up along the way. However, for those people who don’t give up and work their way to the top, it can be extremely rewarding.
Unfortunately, the beauty of compound interest turns ugly when it comes to spending money. The debt curve is basically the saving curve turned upside down, which means that the mountain is now a cliff. Spending money is like walking off a cliff. Thanks to the wonder of gravity, falling takes almost no effort on our part. In fact, a lot of people seem to fall off the edge before they even realize that they’ve gone too far.
